Should You Be Concerned About Shanghai Qingpu Fire-Fighting Equipment Co., Ltd.'s (HKG:8115) Historical Volatility?

Simply Wall St

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If you're interested in Shanghai Qingpu Fire-Fighting Equipment Co., Ltd. (HKG:8115), then you might want to consider its beta (a measure of share price volatility) in order to understand how the stock could impact your portfolio. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. First, we have company specific volatility, which is the price gyrations of an individual stock. Holding at least 8 stocks can reduce this kind of risk across a portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is one. A stock with a beta greater than one is more sensitive to broader market movements than a stock with a beta of less than one.

See our latest analysis for Shanghai Qingpu Fire-Fighting Equipment

What we can learn from 8115's beta value

Given that it has a beta of 1.13, we can surmise that the Shanghai Qingpu Fire-Fighting Equipment share price has been fairly sensitive to market volatility (over the last 5 years). Based on this history, investors should be aware that Shanghai Qingpu Fire-Fighting Equipment are likely to rise strongly in times of greed, but sell off in times of fear. Beta is worth considering, but it's also important to consider whether Shanghai Qingpu Fire-Fighting Equipment is growing earnings and revenue. You can take a look for yourself, below.

SEHK:8115 Income Statement, June 12th 2019

How does 8115's size impact its beta?

With a market capitalisation of HK$111m, Shanghai Qingpu Fire-Fighting Equipment is a very small company by global standards. It is quite likely to be unknown to most investors. It has a relatively high beta, suggesting it is fairly actively traded for a company of its size. Because it takes less capital to move the share price of a small company like this, when a stock this size is actively traded it is quite often more sensitive to market volatility than similar large companies.

What this means for you:

Beta only tells us that the Shanghai Qingpu Fire-Fighting Equipment share price is sensitive to broader market movements. This could indicate that it is a high growth company, or is heavily influenced by sentiment because it is speculative. Alternatively, it could have operating leverage in its business model. Ultimately, beta is an interesting metric, but there's plenty more to learn. This article aims to educate investors about beta values, but it's well worth looking at important company-specific fundamentals such as Shanghai Qingpu Fire-Fighting Equipment’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Financial Health: Are 8115’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has 8115 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 8115's historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.